Here is the Forbe's article that MJ referred to:
Is the restructuring of LG aimed at benefiting investors--or its family owners?
For years South Korea's LG Group rarely made headlines. Even though it ranked just below Samsung as the country's second-largest chaebol, with $92 billion in revenues last year, it didn't keep up with Samsung's pursuit of brand glamour because it focused on humdrum commodities such as chemicals, white goods and low-tech electronics like TVs.
LG's founding families, the Koos and the Huhs, liked the low profile. Since Koo In Hwoi and Huh Joon Koo started the group in 1947, the two families have shared control through a traditional web of cross-shareholdings--it's said there were as many as 200 among family members and LG companies. Koo Bon Moo, the cofounder's grandson, runs the group as chairman and is one of dozens of relatives on LG's 130,000-strong payroll.
As Korea attempts to globalize, LG (once called Lucky Goldstar) is now looking to refashion itself, emphasizing electronics under the slogan "Digitally Yours," launched last January.
In the past year LG has gained ground, along with Samsung, in the global cell phone market, going from the tenth-largest producer of cell phones to the sixth. (Samsung is third, behind Nokia (nyse: NOK - news - people ) and Motorola (nyse: MOT - news - people ).)
Here in the U.S. LG Electronics is reviving the Zenith brand (which it bought in 1995) as a high-end label for its digital TVs and related gear. This year $40 million is going into marketing Zenith. "This is the most expensive marketing campaign we've ever done in North America," says Wayne Park, vice president of digital TV marketing.
The Zenith brand still commands an 80% recognition rate here, versus less than 1% for LG Electronics. That helps in the fight against Samsung, which spent $337 million last year on its own North American campaign.
In the past five years LG Electronics' stock is up threefold, to $34, although Samsung Electronics has done even better--up sixfold, to $266.
But the marketing noise may be a distraction from the most important moves being made at LG, which are internal. Since 1998 the two families have engaged in the most radical restructuring of the group since its founding. The final result, to be unveiled in March, will be a Western-style holding company. Most cross-holdings are to be eliminated. A single entity, called LG Corp., will hold stakes in a streamlined group of companies.
The move is being pitched as a boon for investors. The interests of minority shareholders would, in theory, be aligned with those of the family in the process--since both groups would benefit from the presumably more efficient management of the operating companies.
But since the restructuring began, six transactions have been criticized as being unfair to outside shareholders. This despite the restructuring's touted aims. One transaction has generated a looming lawsuit, by Jooyoung Kim, Korea's leading shareholder rights lawyer, who has finished ten such suits in the past four years--and lost only two of them. |
